Theauditorisalsorequiredtoconsidertheissueoflawandregulationsintheaudit.
AuditorsaregivenguidanceinISA250Considerationoflawsandregulationsinanauditoffinancialstatements.
Responsibilitiesofmanagement
Itismanagement’sresponsibilitiestoensurethattheentitycomplieswiththerelevantlawsandregulations.
Itisnottheauditor’sresponsibilitytopreventordetectnon-compliancewithlawsandregulations.
Theauditorshallrequestwrittenrepresentationsfrommanagementthatallknowninstancesofnoncomplianceorsuspectednon-compliancewithlawsandregulationswhoseeffectsshouldbeconsideredwhenpreparingtheFShavebeendisclosedtotheauditor.
Responsibilitiesofauditor
LawandregulationsthathaveadirecteffectonthedeterminationofmaterialamountsanddisclosuresintheFS.
LawandregulationsthatdonothaveadirecteffectonthedeterminationofmaterialamountsanddisclosuresintheFSbutwherecompliancemaybefundamentaltotheoperatingaspects,abilitytocontinueinbusiness,ortoavoidmaterialpenalties.
Auditproceduresforcomplyingwithlawsandregulations
Theauditorshallobtainageneralunderstandingof:
Theapplicablelegalandregulatoryframework.
Howtheentitycomplieswiththatframework.
Theauditorcanachievethisunderstandingby:
Usingtheirexistingunderstandingandupdatingit.
Makingenquiriesofmanagementabout:
Lawsandregulationsthatmayaffecttheentity
Policiesandproceduresforensuringcompliance
Howtoidentify,evaluateandaccountforlitigationclaims.
Theseauditproceduresinclude:
Readingminutes.
Makingenquiriesofmanagementandlegaladvisersregardinglitigation,claimsandassessments.
Performingsubstantivetestsofdetailsofclassesoftransactions,accountbalancesordisclosures.
Auditprocedureswhennon-complianceisidentifiedorsuspected
Obtainunderstandingofnatureofactandcircumstances.
ObtainfurtherinformationtoevaluatepossibleeffectonFS.
Considertheneedtoobtainlegaladviceifsufficientinformationnotprovidedandmatterismaterial.
Evaluateeffectonauditor’sopinionifsufficientinformationnotobtained.
Evaluateimplicationonriskassessmentandreliabilityofwrittenrepresentations.
Reportingidentifiedorsuspectednon-compliance
Theauditorshall:
Communicatewiththosechargedwithgovernance,theauditcommitteeorthesupervisoryboard.
Determinewhetheridentifiedorsuspectednon-compliancehastobereportedtotheregulatoryandenforcementauthorities.
Althoughtheauditormustmaintainthefundamentalprincipleofconfidentiality,insomejurisdictionsthedutyofconfidentialitymaybeoverriddenbylaworstatute.